The Import One Stop Shop (IOSS)

As of 1 July 2021, there are changes to the way VAT is handled for online sales from businesses worldwide to consumers (that is, B2C) in the European Union (EU).

The goal is to make life much easier for those eCommerce businesses selling to consumers across the EU’s national borders, and thereby facilitating trade.

The changes can be utilised by businesses outside of the EU, including the UK.

The changes are commonly referred to as the EU VAT E-commerce Package and the two key components are One Stop Shop (OSS) and Import One Stop Shop (IOSS).

Any business that has been using the Mini One-Stop-Shop (MOSS) for certain kinds of digital services will already know of the benefits of this kind of simplification.

The new measures extend MOSS by opening it up to more services and also goods including those imported into the EU, thereby potentially simplifying VAT for many more kinds of sales.

It should be noted from the start that neither OSS nor IOSS are mandatory.

As an alternative, businesses can register for and then both account for and pay VAT in each of the EU countries in which they sell to consumers.

This is administratively onerous, of course, and is one of the reasons why OSS and IOSS were created.

It should also be noted that these new VAT measures are limited to online sales to consumers in the EU.

Business to business (B2B) sales from a business in the UK to a business in an EU country continue as they have following the end of the Brexit transition period. on 1 January 2021, which is to say, B2B sales of services are generally subject to the reverse charge.

Exports of goods should be zero rated, and are then subject to tax in the destination country through the application of import VAT.

Government launches consultation on exit payments to farmers

The Government has (19 May) published a consultation on changes to the Basic Payment Scheme (BPS) to support farmers through the agricultural transition period from now until 2027 which will deliver a better, fairer farming system in England.

The consultation will be open for 12 weeks and focuses on two key areas:

Lump sum exit scheme – Building on evidence that some farmers would like to retire or leave the industry but have found it difficult to do so for financial reasons, the Government proposes to offer them a lump sum payment to help them do this in a planned and managed way. The consultation seeks views on who should be eligible for these lump sum payments and how the payments should be calculated.

Delinked payments – Direct Payments currently made through the Basic Payments Scheme offer poor value for money and are based on how much land a farmer has, which inflates rent and can stand in the way of new entrants. The Government plans to phase Direct Payments out over a gradual seven year transition period, to move to a fairer system. The consultation includes plans to separate the payment from the amount of land farmed, from 2024. This will simplify the process for farmers, allow them to focus on running their business and encourage them to take up the government’s new environmental land management schemes, which will reward sustainable food production and environmental improvements. The consultation seeks views on how the ‘delinked’ payments will be calculated.

A vibrant farming industry also needs to attract new talent and create more opportunities for new entrants and farmers wishing to expand their businesses. The Government is working together with industry leaders, local councils, land owners and new entrants to co-design a scheme to create real opportunities for new farming businesses. The new scheme will be available to support new entrants from 2022. Recommendations for the design of the scheme will be shared later in the year.

Environment Secretary George Eustice said:

We need to address the twin challenges of helping new entrants fulfil their dream and gain access to land, while also helping an older generation retire with dignity.

Our exit scheme will offer farmers who want to exit the industry all of the area payments they would likely have received until the end of the transition period in a single lump sum. It gives them a real incentive to confront what can often be a difficult decision and will help them clear bills and settle debts.

By renting out their farm or surrendering their tenancy, those exiting the industry will create important opportunities for the next generation of farmers and later this year we will be saying more about our plans to work with County Farm estates and other land owners to ensure that we nurture the right conditions for new enterprises to flourish.

This follows last year’s announcement of the Agricultural Transition Plan – the Government’s landmark plans to reward farmers and land managers for sustainable farming practices, which will see the introduction of a new, fairer system, co-designed with industry, that is tailored in the interests of English farmers.

The proposals within the consultation seek to offer a fairer system for farmers, encouraging generational change by providing more flexibility for new entrants to start up their farm businesses and supporting those who are ready to leave the sector to do so on their own terms.

The Government is taking steps to develop and co-design each element of the future system in partnership with industry. The consultation launched today seeks feedback on the proposed design of the lump sum exit scheme. At the same time, work is underway to design the New Entrant Scheme and just last month, farmers looking to continue farming were encouraged to take their first step towards a greener future by expressing their interest in participating in the national pilot of the Sustainable Farming Incentive. The application window for this has closed , with successful applicants expected to be invited to make a formal application to begin agreements starting in October shortly.

The proposals set out today also build on previous steps that have been taken to simplify the Basic Payment Scheme, including simplifying penalties for small overclaims of land from the 2020 scheme year, the removal of EU greening requirements which required farmers to carry out specific practices to qualify for additional payments but historically delivered little for the environment, and improving the arrangements for farmers with land in more than one part of the UK, from the 2021 scheme year.

The consultation will close for responses on 11 August 2021. A full report on the responses to the consultation will be published later in the year.

The New Mortgage Guarantee Scheme

The mortgage guarantee scheme that was announced March 2021 is intended as a temporary measure. It is open for new mortgage applications from April 2021 to December 2022, in line with the government’s view that the current scarcity of high loan-to-value lending is primarily a response to the pandemic rather than a symptom of a longer-term structural change in the mortgage market.

The government will review the continuing need for the scheme towards the planned end date and determine whether extending the period of eligibility for new mortgages would continue to deliver benefits for prospective homeowners.

The scheme is designed to help creditworthy households struggling to save for the higher mortgage deposits required by lenders in the current environment. For this reason, a mortgage eligible for a guarantee under the scheme will need to:

  • be a residential mortgage (not second homes) and not buy-to-let
  • be taken out by an individual or individuals rather than an incorporated company
  • be on a property in the UK with purchase value of £600,000 or less
  • have a loan-to-value of between 91 per cent and 95 per cent
  • be originated between the dates specified by the scheme
  • be a repayment mortgage and not interest-only and
  • meet standard requirements in terms of the assessment of the borrower’s ability to pay the mortgage, for example a loan-to-income and credit score test.

The scheme is also designed to ensure that lenders cannot use the government guarantee to restructure the riskiest part of their existing loan book, and that borrowers remain the beneficiaries of the intervention.

The scheme will help to ensure the mortgage market provides options for consumers with smaller deposits who also want a mortgage with the security of predictable repayments for a longer period. For this reason, it will be a requirement that any lender participating in the scheme must offer a five year fixed rate product as part of their range of mortgages offered under the guarantee.

Self-Employed Income Support Scheme SEISS – June 2021 Update

Self-Employed Income Support Scheme SEISS June 2021 Update – Fifth Grant

The fifth grant will cover the period May 2021 to September 2021 – guidance for claiming should be available for the end of June.

What’s different about the fifth grant?

The fifth grant will be determined by how much your turnover has been reduced in the year April 2020 to April 2021 – more information will follow.

March 2021 Update – Fourth Grant

The fourth grant will be available from Late April 2021 until 31st May 2021.  If you are eligible then HMRC will contact you in mid-April to give you your personal claim date.  There will be further guidance to follow.  There are some amendments to the basis for claiming and the income calculations, more HMRC information can be found here.

There is also an important change for those traders who started their business in the 2019/2020 tax year (these were previously excluded from the grant), however applying for the grant may not be straight forward for some of these traders, as HMRC are writing a group of these new traders (around 100,000 traders) asking for confirmation of identity and proof of trading.  If you receive such a request from HMRC and do not respond then you will be denied access to the grant – you will be required to complete a pre-verification check and you must complete all 7 steps to make a successful claim – these steps are as follows:

Step 1: Open the letter

Receive and read the HMRC letter which should arrive between 10 March and mid-April.  The list of genuine HMRC contacts has recently been updated to include reference to the SEISS letter to first time tax return filers, so this might provide some comfort to taxpayers that the HMRC letter should not be ignored.  

Step 2: Answer call from HMRC

Up to two weeks after the letter is sent an HMRC officer will call the contact number given on the taxpayer’s 2019/20 tax return. If the agent’s number was shown as the contact point HMRC will ask the agent to pass on their client’s telephone number.

The taxpayer needs to answer HMRC’s call although it will be shown as coming from an “unknown number”.

HMRC will make only three attempts to call between 8am and 5.30pm. If none of those three attempts are successful the taxpayer will have failed the pre-verification. It is therefore essential that HMRC has the taxpayer’s correct telephone number.

The taxpayer can correct the number held by HMRC by calling: 0800 024 1222. This number is only set up to update taxpayers’ telephone contact details; the call-handler can’t deal with further queries about the SEISS.

Step 3: Supply email address

When the taxpayer does speak to HMRC they must confirm or supply their email address. They must also agree to receive a link to a Dropbox account to that email address.  

Step 4: Find email from HMRC

The taxpayer must receive and open an email from HMRC that includes the Dropbox link. This is another point where the system could break down, as the HMRC email could easily be automatically sent to the taxpayer’s junk folder.  

Step 5: Digital copies

The taxpayer needs to make digital copies of a form of their ID (eg their photo-card driving licence, or current passport) plus three months of their UK business bank statements from 2019/20. This information is needed to demonstrate that the new business has been active in 2019/20.

If the business has been run without a UK bank account HMRC will accept other documents, but the taxpayer must agree what is acceptable in their call with HMRC.  

Step 6: Upload documents

Taxpayer has only two days to upload the digital copies of their ID and bank documents to the HMRC Dropbox. After two days the Dropbox link will expire and the taxpayer will fail the pre-verification. 

Step 7: Apply for the grant

The online portal to apply for the next SEISS grant will open in late April, HMRC hasn’t confirmed exactly when. All the above steps need to be completed before the taxpayer attempts to claim the SEISS grant. Tax agents cannot claim SEISS grants on behalf of their clients.  

Concerns

There are some obvious concerns around this system, particularly in respect of those that may simply not have the facilities to comply, the timescales involved and of course the fact that this looks like a scam.  Without prior warning you may dismiss the initial call as a scam, loading documents into a Dropbox has a particularly suspicious feel to it and sadly it is highly like that scammers will copy this procedure to launch attacks.

As your agent we cannot make the claim on your behalf but we should be able to assist in confirming the validity of any request and to advise if such a request for information would be relevant to you.

Additional Information:

Recovery Loan Scheme – Launches 6th April 2021

6 April saw the launch of the Recovery Loan Scheme (RLS). Available until 31 December, subject to review, RLS provides a guarantee to lenders and covers a variety of products including term loans, overdrafts, asset finance and invoice finance, which companies of all sizes can access, regardless of their turnover. 

What’s more, businesses that have borrowed under CBILS, CLBILS or BBLS can also apply for RLS provided they meet eligibility criteria. To keep up to date on the opportunities available to your clients through RLS, simply create your free Swoop account. 

More information can be found here

COVID19: Coronavirus Business Loan Schemes Extended – January and March 2021 Update

March 2021 Update: Businesses that took out government-backed Bounce Back Loans will now have greater flexibility to repay their loans with the option to delay repayments by six months or to extend the length of the loan using Pay as You Grow repayment flexible options.

Coronavirus Business Interruption Loan Scheme

The scheme helps small and medium-sized businesses to access loans and other kinds of finance up to £5 million.

The government guarantees 80% of the finance to the lender and pays interest and any fees for the first 12 months.

The scheme is open until 31 March 2021.

Coronavirus Bounce Back Loan

The scheme helps small and medium-sized businesses to borrow between £2,000 and up to 25% of their turnover. The maximum loan available is £50,000.

The government guarantees 100% of the loan and there won’t be any fees or interest to pay for the first 12 months. After 12 months the interest rate will be 2.5% a year.

The scheme is open to applications until 31 March 2021.

If you already have a Bounce Back Loan but borrowed less than you were entitled to, you can top up your existing loan to your maximum amount. You must request the top-up by 31 March 2021.

Vat Domestic Reverse Charge

See the bottom of this article for details of a free Webinar hosted by Xero (you don’t need to use Xero to access this webinar)

What is the VAT reverse charge?

The government is changing the way that HMRC collects VAT payments.
Until now, businesses in the construction industry would usually charge VAT when selling their materials or services, regardless of whether they are dealing with clients, contractors, subcontractors, etc.

As of March 1st, 2021, suppliers will not be allowed to charge VAT unless they are supplying services to an “end-user”. For those transactions, they must only invoice for and collect the amount excluding VAT. Instead of paying the VAT to the supplier, the customer will pay the VAT directly to HMRC.

Who is classed as an “end-user”?

Final customers are referred to as “end users” in the guidelines. Anyone who will either use, rent or sell the structure in question is an end-user, so for example:

  • Landlords
  • Developers
  • Domestic householders
  • Local authorities
  • Utility companies

Of course, this is made a little more complicated by the fact that “intermediary suppliers” are also treated as end-users, so if you deal with those, you can continue to charge them VAT too.
Your customer should confirm in writing that they are an end-user. (See Example End User Statement)

HMRC’s technical guide offers some further clarification on this distinction and what you should do to determine how your customers should be classified.

Download Flow Chart PDF

1. Read the government’s official advice.

We highly recommend scanning through the guidance published by HM Revenue & Customs for a better understanding. There are a lot of pointers there which are specific to different situations.

2. Talk to CGA

You will also be able to get more personalised advice CGA.   We can help you understand what the biggest impact will be on your business, given the way you work and what steps you should take.   

3. Consider how you handle your VAT returns.

It is common for contractors to do their VAT returns on a quarterly basis. If that is what you do, consider changing to monthly. Although it might require more admin in the short term, this may help balance out the effect on your cash flow.

4. Update your invoicing system.

You will need to review your invoices and potentially remove VAT from a lot of them moving forward. Make sure this is as systemised and automated as possible!

Invoices sent after 1 March 2021 will need to contain wording explaining that they are reverse charge invoices and will look something like our example.

They will not show VAT in the columns which calculate the payment to be made. On the following page there is an example invoice where no end-user certificate has been supplied.

See the example invoice.

The example invoice is not prescriptive – legally you do not have to show the VAT number of the customer, but it evidences that you have checked that they are registered and is good practice.

Your software system may not let you calculate the VAT that is being reverse charged and print it outside the accounting column. If you cannot show it, don’t worry. The recipient of the invoice will have to do the calculation themselves.

Use your software system to record as much information about your customer/supplier as possible.

What is important is that your invoice does not charge VAT and clearly shows that it is a reverse charge invoice and S55A applies.

5. Write to your subcontractors.

When your subcontractors invoice you for their services, they can no longer charge you VAT under the new rules, because you will owe it to HMRC directly instead. We suggest writing to them to confirm this, advise them on where to go for more information, and maybe offer to discuss further if needed. (See example letter to sub-contractors)

6. Write to your Customers (Intermediaries and End Users) – You need to establish if your customer is an intermediary or end user – they may be both.

See example letter to customers.

In deciding whether you are working for an end user you must ask yourself who you are actually contracted with, who are you expecting to pay you. Do not think about the final client if you will not be directly contracted to or paid by the final client. Ask yourself, is the firm that you work for going to be the end user of that building or construction activity?

Sometimes you will contract with a group company that is acting for another company in its own group as a property procurement company, it is an intermediary for the end user.
Sometimes you will work for a landlord who is acting for a group of tenants to procure and organise work.

The tenants are the end users and the landlord is an intermediary.

If a business is acting as an intermediary and is VAT registered and CIS registered and the work you are doing is standard rated construction work, you must reverse charge VAT unless the intermediary gives you an end user statement.

Intermediaries acting for groups or for tenants are allowed to issue end user statements. If they give an end user statement there is no need to question it or to enquire about the structure of the group companies, or the landlord tenant contract in any detail – if you hold an end user statement you must charge VAT.


FREE Webinar – Managing Reverse Charge VAT and CIS

Next week, on 26th February at 10am Xero are running a free webinar for construction businesses, outlining the Reverse Charge VAT changes and giving tips on how to prepare. This session is open to all construction businesses, regardless of whether they currently use Xero. 

We welcome you to join by clicking this registration link 

The 45 minute webinar will cover:

  • What Domestic Reverse Charge VAT is 
  • How it will affect both contractors and subcontractors
  • How to prepare for the mandatory change 
  • How Xero can help manage Domestic Reverse Charge VAT and CIS 

Brexit January 2021 Update

The UK and the EU agreed future trading terms of the UK-EU Trade and Cooperation Agreement. The UK has approved the agreement and it came into effect provisionally on 31 December 2020, whilst awaiting the EU to take steps to approve it.

See the agreement here:

Brexit: new rules – Government guidance

The Government has updated its guidance on the new rules that apply to travel and doing business with Europe. Clearly there are problems with the administration just now and we will keep you up to date of any issues as they arise.

You can check using the website below on what you need to do differently if you are:

  • importing goods from the EU
  • exporting goods to the EU
  • moving goods to or from Northern Ireland
  • providing services to EU countries
  • travelling to the EU
  • living and working in the EU
  • staying in the UK if you are an EU citizen

Selling services to the EU, Switzerland, Norway, Iceland and Liechtenstein

The UK-EU Trade and Cooperation Agreement ensures that UK firms in a variety of service sectors can continue to access the EU market, including as business travellers and cross-border services suppliers or investors, while being treated no less favourably than either EU businesses or competitors from third countries.

While the Agreement sets out expectations of the treatment and level of access to each Party’s domestic market, there will still be some changes for business as a result of no longer operating under European Economic Area (EEA) regulation covering cross-border trade in services. These changes are different for each sector and differ in each member state of the EU.

Click here for Government guidance for UK businesses on rules for selling services.

There are country guides and information for UK businesses providing services and travelling for business to countries in the EEA and Switzerland here.

Data sharing

How this affects your business will depend on several factors, including the nature of your business and where your customers are located. Data sharing with the EEA is one of the key areas to consider.

The Government has legislated so that UK firms can continue to lawfully send personal data from the UK to the EEA and 13 other countries that the EU has deemed to provide an adequate level of protection of personal data. They have also announced that the UK-EU Trade and Cooperation Agreement provides for the continued free flow of personal data from the EU and EEA to the UK until adequacy decisions are adopted, for no longer than 6 months.

The Information Commissioner’s Office (ICO) states that the agreement between the UK and the EU enables businesses and public bodies across all sectors to continue to freely receive data from the EU (and EEA). However, as a sensible precaution, the ICO recommends that businesses work with EU and EEA organisations who transfer personal data to them, to put in place alternative transfer mechanisms to safeguard against any interruption to the free flow of EU to UK personal data. Read more here.

This means that businesses and organisations can be confident in the free flow of personal data from 1 January, without having to make any changes to their data protection practices.

The new rules will take some time to “bed in” and we will keep you updated on practical actions to take and as new rules or agreements are made between the UK and the EU.  

Business Interruption Insurance

As the UK national lockdowns continue, we are pleased that there is some good news for hospitality and other businesses who were closed by the Government in the first lockdown, after the Supreme Court ruled that insurers should pay business interruption claims.

Small firms in line for business interruption insurance pay out

The Financial Conduct Authority (FCA) has won its court case to get insurers to pay out for business interruption due to the first lockdown in the spring of 2020. The Supreme Court says it “substantially allows” the appeal by the FCA and hospitality groups. The decision affects approximately 370,000 policyholders and over £1billion in claims which should now be paid out.  

Small businesses including pubs, cafes, wedding planners and beauty parlours, argued they faced becoming insolvent when they were refused compensation by insurers for business interruption policy claims on losses caused by the first national COVID-19 lockdown.

Some of the world’s largest commercial insurers including Hiscox, Royal Sun Alliance, QBE, Argenta, Arch and MS Amlin, told the Supreme Court in an appeal that many business interruption policies did not cover widespread disruption. The Court ruled against them.

This now means that the Supreme Court ruling will provide guidance on the claim adjustment process and it is hoped that this will progress quickly.

See:   https://www.supremecourt.uk/cases/uksc-2020-0177.html

The FCA has stated that they will be working with insurers to ensure that they now move quickly to pay claims that the judgment said should be paid, making interim payments wherever possible. Insurers should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.

See:  https://www.fca.org.uk/news/press-releases/supreme-court-judgment-business-interruption-insurance-test-case